How I Invest with David Weisburd
00:14:38 · David Weisburd, Christopher Donahue
[00:14:38] S0: So then retail or institutional investors, they have a portfolio. So in general, only call it 5% of their funds. Maybe if it's a retail investor, maybe 10%. They want super liquid so that they can make some purchases, but endowments they need to have to pay for their yearly yearly expenses. But on corporations, the cash is kind of like the leftover thing. The cash is what they need on a daily basis. [00:15:04] S1: Well, sometimes it's not leftover. Sometimes that treasurer is told, I want X percent of something, or I want X number of dollars in cash available all the time. If I want to do an acquisition, I've got to have cash available. Now, maybe cash should be available through a loan or through revolving credits, and that counts. But almost all treasurers are going to have several months of payroll in the bank and not be a living hand to mouth. And so it isn't what's left over. To me, it would be the reverse. It's what's first. [00:15:42] S0: There's almost like these two buckets. There's these money spend that you're gonna have to spend over the next couple months, and then there's, like, these cash positions. We've all heard of Apple or Google or name your tech company having just enormous amounts of cash, hundreds of billions of dollars. Now you can't talk about specific clients, but if you were one of those tech companies, what do those positions look like when you double click? Is it all just in one day treasuries? [00:16:14] S1: No. It it would be out the array, and some of those companies have money in our money market. Yeah.
00:16:14 · Christopher Donahue, David Weisburd
[00:16:14] S1: No. It it would be out the array, and some of those companies have money in our money market. Yeah. [00:16:20] S0: So without without mentioning companies No. I don't mention them. But Maybe talk about what what those look like. What do those portfolios [00:16:26] S1: I don't know what their whole balance sheet looks like, but, you know, they trade in billions, and these are big numbers. And they've gotta be in a fund that can handle that. And if we can use an example, I can talk about FHI, Federated Hermes. And because we're owner operators, and because we have no net debt, we have a lot of financial flexibility to borrow. Okay? And if we have excess cash, we tend to pay special dividends, do acquisitions, and buy stock back. And then we're always debating which which of those are the best for the long term interests of the enterprise and the shareholders. Those guys are all doing the same thing. As you know, they're spending more money than Godot on building on their CapEx expanded data centers. And yeah, getting the compute. We got to get the compute. So fine, get the compute. That's what they're doing. It's really hard for me to say what their balance sheet should look like or how they want to structure But [00:17:35] S0: in their cash position that they have with you, is it all one instrument? [00:17:39] S1: No, they would be in one or two funds, different funds. And some of them are okay with going into a prime fund. Others are in the gov funds. Some really want a conservative and are in the treasury fund.
00:17:39 · Christopher Donahue, David Weisburd
[00:17:39] S1: No, they would be in one or two funds, different funds. And some of them are okay with going into a prime fund. Others are in the gov funds. Some really want a conservative and are in the treasury fund. [00:17:55] S0: Maybe you could double click on those. What are the differences between those? [00:17:58] S1: So, a prime fund would have about a 15 basis point higher yields. Prime securities, highly rated, minimal credit risk is the standard under the SEC rules. And this is something we've been doing for many, many decades. So that would be one. Then the actual govie, it was 15 basis points over the govies. So that would be government securities, agencies, and things like that. And then the treasuries would be the lowest of the yield of all of those, and a few basis points less than the govies. So, that's the array. Now, they're not going to be, generally speaking, using tax freeze, which is a whole different ballgame as a general rule. And because they're out taxing? Because they have other ways to deal with their taxes than trying... Like an individual wants a tax free New York money market fund because they pay New York taxes, and they don't want to deal with it. [00:19:02] S0: Is that not a good idea? Oh, it's
00:19:02 · David Weisburd, Christopher Donahue
[00:19:02] S0: Is that not a good idea? Oh, it's [00:19:04] S1: a great idea. But for the corporation, it's got to be almost like a flip of the yields where they look at what they're getting on the if there's a disparity in the municipal market where the yields are so high that they're happy to do it, then they're they're happy to do it almost on a taxable basis. And that happens once in a while, but that's not the general rule at all.
00:19:30 · S2
[00:19:30] S2: One thing I've learned from talking to hundreds of investors is that great investment firms aren't built on investment returns alone. The firms under are great at the things most people don't see, their operations, relationship with LPs, and the quality of information they use to make decisions. And here's what AI has changed. Every firm now has access to the very same models, so the intelligence isn't the edge anymore. The edge is what you could feed it. Firm with its operations and data in one connected record can actually put AI to work. A firm running on disconnected systems simply can't. That's why thousands of GPs run their funds on Juniper Square. Juniper Square puts your fund operations, data, and administration together in one connected record. That means less time managing disconnected systems and more time investing, working with LPs, and building your firm. This episode is brought to you by Juniper Square, the operations partner for private market GPs. Learn more at junipersquare.com/howiinvest. That's junipersquare.com/howiinvest. Everyone I talked on the show is chasing the same thing, an edge. And more and more of the edge comes down to your information, not just having it, but being able to trust it when the stakes are highest. AI is doing more of that information gathering for you every day and most tools are very good at sounding right. The summary reads clean, but can you trace it back to filing the transcript, the specific passage that drove the answer, or are you just trusting the confidence of the output? For investors, that's not a minor concern. A miss filing, miss weighted source, context that got lost somewhere in the retrieval chain, those aren't edge cases, they're how decisions go wrong. AlphaSense is the AI market intelligence platform built specifically for this. They own the content over 500,000,000 curated documents from broker research and expert transcripts to filings and earnings calls, and they own the retrieval layer on top of that. So every answer links back to an exact verifiable source because the answer is only as good as what's underneath it. And with AlphaSense, you know exactly what that is. The edge goes to whoever can trust their information and prove it. See it for yourself. Start your free trial at alpha-sense.com/howiinvest. That's alpha-sense.com/howiinvest.
00:21:39 · David Weisburd, Christopher Donahue
[00:21:39] S0: It's funny because a lot of people might say, why do a podcast on cash? And I think there's somewhat of a cognitive dissonance here in that everybody wants to think that they're... They have some crisp... Perfect crystal ball. They're perfectly efficient allocator of capital where they they look on their balance sheet, and there's always just a couple $100 in their cash, and everything is perfectly allocated. But if you look at people's behavior, and it's rational, you have to have... If you look at... You know, I'm probably up $2,030,000 dollars in just cash. Why? Because I have to pay rent, or I just have to make some decisions with it, or I'm busy those couple weeks that I got that cash in, and I have to make a decision. So having this default strategy on your cash is actually pretty [00:22:24] S1: Or you get to pay for a growing family. These are new expenses that didn't exist five minutes ago. We are well experienced in that. [00:22:33] S0: Talk to me about your business model for Federated Hermes. How is it that you guys get money?